July 14, 2010
LIBERTY TRAVEL, INC., AND BARRY S. KAPLAN, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
FRIEDMAN & SIEGELBAUM, LLP; PHILIP E. STERN; AND STEVEN D. FLEISSIG; DEFENDANTS-RESPONDENTS, AND RICHARD, DISANTI, GALLAGHER, SCHOENFELD & SURKIN; SERENI & LUNARDI; MARK A. SERENI, ESQ.; DENISE MAZZA; NANCY J. SIGNORA; PAUL GORDON HUGHES, ESQ.; AND MICHAEL P. PIERCE, ESQ., DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS, AND HENRY LUNARDI, DEFENDANT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4236-00.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 27, 2009
Before Judges Fuentes, Gilroy and Simonelli.
This appeal concerns a legal malpractice, breach of contract, and misrepresentation action filed by Liberty Travel, Inc. and Barry S. Kaplan, Liberty's former chief operating officer (Liberty), against defendants Friedman & Siegelbaum, and attorneys Steven D. Fleissig and Philip Stern, individually, (the Friedman firm), as well as Liberty's Pennsylvania counsel, Richard, DiSanti, Gallagher, Schoenfeld & Surkin (the Richard firm). Liberty also asserted intentional, reckless, and negligent misrepresentation claims against Sereni & Lunardi (the Sereni firm); partner Mark A. Sereni; Denise Mazza, a paralegal in Sereni's office; and Paul Gordon Hughes, Michael P. Pierce, and Henry Lunardi, general partners in the Sereni firm. Liberty's misrepresentation claim is based upon alleged false statements made by Mazza to Fleissig in connection with an alleged agreement to extend the time Liberty had to answer a class action complaint filed against Liberty by a former employee in Pennsylvania. Liberty's New Jersey legal malpractice action arises from this class action suit.
On June 20, 1995, Nancy Signora, a former Liberty employee, filed a complaint in Pennsylvania against Liberty, asserting a common law claim for retaliatory termination based upon her attempt to exercise her rights under the Pennsylvania Minimum Wage Act (PMWA), in addition to an individual and class action claim for failure to pay overtime wages under the PMWA. On July 28, 1995, a Pennsylvania court entered default judgment against Liberty for failure to file a responsive pleading. Liberty's efforts to vacate the default judgment proved unsuccessful. In a trial limited solely to damages, conducted in July of 2003, a jury in Pennsylvania awarded the Signora class $1,406,117.58 against Liberty.
In this malpractice action, Liberty claims that the Friedman and Richard firms failed to obtain an extension of time to answer Signora's Pennsylvania complaint and that the Richard firm did not take appropriate legal action to vacate the default judgment entered against Liberty. Liberty raises the same facts to support its claim based on breach of contract. The Friedman firm settled with Liberty after this appeal was filed. Thus, Liberty's only remaining claims are against the Richard firm, based on its failure to vacate the default judgment entered against Liberty, and against the Sereni defendants, for breach of contract.
The trial court dismissed Liberty's claims against the Richard and the Sereni defendants. With respect to Liberty's claims against the Sereni defendants, the trial court found that the issue of the existence of an extension agreement that would have prevented Sereni from entering a Pennsylvania default judgment against Liberty had been tried to conclusion in favor of Sereni by a Pennsylvania court. The trial court reasoned that the doctrine of res judicata thus precluded Liberty from relitigating this issue in the context of this New Jersey breach of contract action.
The trial court came to a different conclusion with respect to Liberty's claims against the Richard firm. After conducting its own de novo review of the Pennsylvania court's decision, the trial court concluded that the Pennsylvania judge misapplied Pennsylvania law when he denied the Richard firm's motion to vacate the default judgment against Liberty. The trial court thus granted summary judgment in favor of the Richard firm. Although this ruling was sufficient to constitute a final judgment, the trial court nevertheless found that even if the Pennsylvania action had been tried on the merits, Liberty would not have prevailed on its defenses as a matter of law.
Prior to these rulings, a different trial judge found that New Jersey had personal jurisdiction over the Sereni defendants, that New Jersey law, including its statute of limitations, should be applied to assess the viability of Liberty's claims, and that Liberty could maintain a negligent misrepresentation claim against these defendants.
Liberty now appeals from the orders dismissing its case against the Richard firm and the Sereni defendants. The Sereni defendants cross-appeal from the earlier order finding them subject to New Jersey jurisdiction and applying New Jersey law to adjudicate Liberty's claims against them. We affirm. Our reasons for affirming the trial court's ruling, which dismissed Liberty's case against the Richard firm, however, differ from those expressed by the trial court. We are satisfied that the trial court erred when it reviewed de novo the propriety of the Pennsylvania court's decision to deny the Richard firm's motion to vacate the default judgment entered against Liberty. Under the doctrine of collateral estoppel, the trial court should have precluded the Richard firm from relitigating this issue. Traditional notions of comity also obligated the trial court to respect and defer to decisions made by courts of a sister state, especially when, as here, the record reflects that the foreign court afforded the parties a full and fair opportunity to litigate the matter in question.
The following facts will inform our analysis of the legal issues presented.
I. The Friedman Firm
Signora filed her class action complaint against Liberty on June 20, 1995, in the Pennsylvania Court of Common Pleas of Delaware County. Service of process was served upon Liberty and Kaplan on June 26, 1995, and June 23, 1995 respectively. Neither party filed a responsive pleading within twenty days of service of the complaint. On July 17, 1995, Signora's attorney, Mark A. Sereni, served Liberty and Kaplan with a ten-day notice of default by certified mail.
At that time, Philip Stern was Liberty's national labor and employment law counsel. On July 18, 1995, the day after he received Signora's complaint from Liberty, Stern called Sereni to request an extension of time to file an answer to the complaint. Although he was leaving on vacation soon, Stern wanted to handle this matter personally. According to Stern, Sereni agreed to extend the time to answer until August 4, 1995, provided, however, that no preliminary objections would be filed and that an entry of appearance would be filed by July 27, 2005, by a Friedman firm attorney, admitted in Pennsylvania. Stern agreed to this latter condition because he erroneously believed that his firm had such an attorney.
By letter addressed to Stern dated July 18, 1995, Sereni confirmed the terms of the oral agreement:
[Liberty and Kaplan] may have an extension of time to August 4, 1995 to file an Answer only, on the condition that I receive a time-stamped copy of your firm's Entry of Appearance for [Liberty and Kaplan] no later than July 27, 1995. If I do not receive such Entry of Appearance by that date, Signora will proceed with filing for Default Judgment.
Accordingly, I enclose the original of an unsigned Agreement Pursuant to Pa.R.C.P. Rule 237.2 to Extend Time to Plead Following Ten-Day Notice. Please date, sign and return this form along with you firm's timestamped Entry of Appearance. I will then date and sign the Agreement and send you a fully executed copy.
Fleissig, a Friedman partner, received Sereni's letter on July 24, 1995, three days after Stern had left for vacation. Unable to reach Stern, Fleissig attempted, without success, to contact Sereni by telephone to obtain his verbal approval to extend the time to comply with the terms of the agreement. Left with no other alternative, Fleissig decided to write Sereni the following letter dated July 24, 1995:
My office is in receipt of your letter requesting a "time-stamped copy of our firm's Entry of Appearance no later than July 27, 1995" agreeing to an extension of time to file an Answer. My secretary has tried several times without success to reach you or your secretary to advise you that Mr.
Stern is on vacation and will not be returning until Monday, July 31, 1995.
Please, in lieu of Mr. Stern's absence, grant the extension as discussed in his telephone conversation with you on July 18.
He will confirm the extension or the form you attached, immediately upon his return.
The following day, July 25, 1995, Sereni faxed Fleissig the following letter:
Rather than quibble about the terms of the extension agreement which I made with Mr. Stern before he left for vacation, I am happy to grant [Liberty and Kaplan] an extension of time to August 4, 1995 to file an Answer only, on the condition that I receive a time-stamped copy of your firm's Entry of Appearance for [Liberty and Kaplan] and the signed agreement pursuant to Pa.
R.C.P[.] 237.2 as soon as practical after Mr. Stern's return from vacation but before August 4, 1995.
Concerned that the reference in the letter to the filing of an answer "only" might limit Liberty's ability to file a counterclaim or third-party complaint, Fleissig again attempted to contact Sereni by telephone. This time, Fleissig claimed that he spoke to Mazza, a paralegal in Sereni's office:
I discussed with her the fact that in Mr. Sereni's letter it says that we had to file an answer only, and I did not know what Mr. Stern had said to Mr. Sereni, or Sereni to Mr. Stern in the prior week about an answer only, and I did not know if . . . Mr. Stern had agreed to that, so I said I can't agree to it on behalf of our firm, I have not spoken to Mr. Stern about it, and her response was don't worry about it, nothing is going to happen this week anyway.
According to Fleissig, immediately after the call ended he wrote the following note at the bottom of Sereni's July 25, 1995 letter: "Phil [Stern] - I spoke to Sereni's paralegal. I was concerned that you (or our local counsel (?)) may wish to file something other than an Answer. Paralegal said nothing will be done by them (i.e. def[ault] until you return." Fleissig denied receiving a voicemail message from Sereni later that day indicating that he was in the office and ready to speak to Fleissig. Fleissig did not remember whether he placed Sereni's letter, which contained his notation, in the firm's interoffice mail or dropped it on Stern's chair. He also left Stern a message on his voicemail that "there was nothing to worry about on this case until he came back." According to Stern, when he called in later that day, Fleissig told him the same thing.
Mazza's recollection of her telephone conversation with Fleissig differs in a number of material respects. According to Mazza:
[A] man who identified himself as Mr. Fleissig had mentioned to me that he received a fax and he would like to discuss it with Mr. Sereni. Mr. Sereni was not available at that time to discuss or to even speak with Mr. Fleissig, so I happened to talk to him, and . . . Mr. Fleissig had mentioned to me that he will not be bound by an extension to answer only per Mr. Sereni's letter to Mr. Fleissig's law firm, and . . . I said I [would] have to discuss this matter with Mr. Sereni and I would leave a message for Mr. Sereni to get back to him.
Thus, Mazza denied telling Fleissig that Sereni would take no action, including the filing of a default, until Stern returned from vacation. Mazza emphasized that she was not authorized to make such commitments on behalf of Sereni.
On July 27, 1995, Sereni served upon Liberty a praecipe*fn2 for entry of judgment by default for failure to file a responsive pleading. By letter dated July 29, 1995, Sereni explained that he considered Fleissig's July 24, 1995 letter as repudiation of the agreement he had reached with Stern. Stern first learned that default had been entered after he returned from vacation on July 31, 1995.
The Richard Firm
Stern immediately contacted the Richard firm on behalf of Liberty to begin proceedings to vacate the default. By letter dated August 3, 1995, Stern sent L. Keith Lipman, an associate in Richard's office, a hard copy of and a disk containing Liberty's Answer and Petition for Relief from Default. In this letter, Stern noted that he had been unable to have Kaplan or another Liberty representative verify the Answer. Stern thus "would appreciate [Lipman] signing the Verification as we discussed." Toward that end, Stern advised Lipman that he could have a verification page faxed to his attention.
On August 4, 1995, Lipman, on behalf of the Richard firm, filed with the Pennsylvania Court of Common Pleas Liberty's petition for relief from default, a copy of a proposed answer, and a supporting legal memorandum. The petition asserted three separate defenses. As Stern requested, Lipman signed the verifications for both the petition and the proposed answer. In her opposing memorandum of law, Signora argued that the verifications to the petition and proposed answer were defective and insufficient.
On September 7, 1995, Lipman substituted the following verification to the petition:
I hereby verify that the averments of fact made in the foregoing [Petition] are true and correct to the best of my knowledge or information and belief. The language of the Petition is that of my attorney. I understand that the averments of fact made herein are subject to the penalties of 18 Pa. C.S. § 4904, relating to unsworn falsification to authorities. s/_____________________ Richard Cowlan
Dated: September 1, 1995
Lipman filed a similar verification to the proposed answer, which was also signed by Cowlan.
Judge Battle, of the Pennsylvania Court of Common Pleas, Civil Division, denied Liberty's petition to vacate the default. The judge supported his order in a comprehensive memorandum of opinion dated April 22, 1996. After reciting the procedural history of the case and stating the parties' legal positions in the matter, Judge Battle began his analysis by first identifying the standard in Pennsylvania for vacating a judgment by default:
42 Pa.R.C.P. 237.3 refers to default judgments. It states:
(a) A petition for relief from a judgment of non pros or of default entered pursuant to Rule 237.1 shall have attached thereto a verified copy of the complaint or answer which the petitioner seeks leave to file.
(b) If the petition is filed within ten days after the entry of the judgment on the docket, the court shall open the judgment if the proposed complaint [or] answer states a meritorious cause of action or defense.
Applying this legal standard to the petition for relief and the proposed answer filed by Liberty, Judge Battle made the following ruling:
In the case at bar, [Liberty and Kaplan] have failed to properly verify the Petition for Relief from Default and they also failed to verify their answer. [Liberty and Kaplan] attempted to correct this problem by filing a Praecipe to Substitute Verification relating to defendants' Petition for Relief from Default. This occurred after the ten day requirement for filing required by Pa.R.C.P. 237.3. This, too, was not properly verified in that not only was the verification made by a non-party but it also failed to state the reasons why the attorney made the verification instead of the party. Further, the verification did not state as to what matters the attorney did or did not have personal knowledge. In [Liberty and Kaplan's] Reply Memorandum in Support of Petition for Relief from Default Judgment [sic], the [parties] cite to [Lewis v. Erie Ins. Exchange, 421 A.2d 1214 (Pa. Super. 1980)], where the court held that before dismissing a petition on the basis of a defective verification, the court should allow the petitioner to amend. The [parties] did amend, but failed to do so correctly.
By order dated May 15, 1997, Judge Battle denied the Richard firm's motion for reconsideration on behalf of Liberty. On Liberty's appeal, the Superior Court of Pennsylvania affirmed Judge Battle's ruling in an April 22, 1998, unpublished opinion. Signora v. Liberty Travel, Inc., 718 A.2d 355 (Pa. Super. Ct. 1998), appeal denied, 782 A.2d 548 (Pa. 2001). By order dated December 30, 1999, Judge Battle denied a subsequent petition by Liberty for relief from the default judgment. As noted in a later proceeding in the Superior Court of Pennsylvania, after the petition seeking relief from the default was denied, Liberty's "appeal of the matter was quashed with the court referring to the doctrine of res judicata and ruling that: 'Appellants cannot now seek again to open the default judgment which was final in 1998.' The Supreme Court of Pennsylvania later denied a petition of allowance of appeal." Signora v. Liberty Travel, Inc., 886 A.2d 284, 288 (Pa. Super. Ct. 2005), appeal denied, 919 A.2d 958 (Pa. 2007).
A different judge sitting in the Pennsylvania Court of Common Pleas granted class action certification to Signora in an order and opinion dated June 19, 2002. After noting that a default judgment on liability had been entered and considering the number of unsuccessful attempts to vacate that default, the class action court held that "averments of fact and allegations of [Liberty's and Kaplan's] liability for damages to [Signora] and to the Class as . . . set forth in the Complaint and recited below are deemed adjudged adversely to [Liberty and Kaplan]."
After Liberty filed this legal malpractice and breach of contract action in New Jersey, the Pennsylvania class action judge entered an order dated June 10, 2003, which upheld a July 15, 2002, order granting Signora's
Emergency Petition for Injunctive Relief to Enjoin [Liberty] from Proceeding in the New Jersey Lawsuit . . . [thus preventing Liberty] from taking, initiating, prosecuting or pursuing in the courts of the state of New Jersey, or in the courts of any other foreign state, any action intended and/or designed to result in the vacating of the Default Judgment entered and upheld against the [Liberty] by the Courts of this Commonwealth.
Acting on Liberty's appeal, on March 22, 2004, the Superior Court of Pennsylvania declined to disturb the injunctive relief ordered by the Court of Common Pleas. Signora v. Liberty Travel, Inc., 846 A.2d 145, 146 (Pa. Super. Ct. 2004), aff'd by, 886 A.2d 284 (Pa. Super. Ct. 2005). The court reasoned that the appeal was rendered moot since a trial had taken place and a jury rendered a verdict awarding Signora compensatory and punitive damages. Signora, supra, 846 A.2d at 147.
The Superior Court also affirmed the judgment in the Signora class action. Signora, supra, 886 A.2d 284. In the course of its opinion, the court was highly critical of Liberty's continued attacks upon the default judgment entered against it on July 28, 1995:
One might have anticipated that . . . [Liberty and Kaplan] would have ceased their efforts to avoid the effects of the default judgments which had been entered against them. Yet, despite having been told in 2000 by this Court that they "cannot now seek again to open the default judgment which was final in 1998," . . . and having been so reminded of this holding again in 2004, [Liberty and Kaplan] nevertheless are brazenly proceeding in this appeal to attempt to achieve precisely the same relief which they have consistently been denied since 1998. Their third issue raised in the instant appeal is a direct, frontal assault on the two default judgments, and it may be summarily dismissed as without merit on the basis of both res judicata and the law of the case. Liberty's bold assertion that "there is no precedent for treating a default judgment based solely upon a failure to answer as resolving issues that are purely questions of law" is particularly baffling in light of caselaw cited by the trial court in its opinion which supports this very proposition. Had [Liberty and Kaplan] perhaps reviewed with a keener eye the legal precedent relied upon by the trial court, their consternation on appeal would have been considerably lessened. [Id. at 291 (internal citations and footnotes omitted).]
Against this record, Liberty argues that, in conducting its own de novo review of the Pennsylvania courts' rulings that denied the Richard firm's multiple attempts to vacate the default judgment in the Signora class action case, the trial court acted like a "Super Court of Appeals for Pennsylvania." According to Liberty, the Richard firm should be estopped from challenging the legal correctness of the Pennsylvania courts' rulings in this area. We agree.
To invoke the doctrine of collateral estoppel, a party must show that:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [Twp. of Middleton v. Simon, 193 N.J. 228, 236 (2008) (internal citations and quotations omitted).]
With these principles in mind, we are satisfied that the Richard firm is collaterally estopped from challenging, in this New Jersey action, the Pennsylvania courts' rulings denying the firm's multiple applications to vacate the default judgment entered against Liberty in the Signora class action suit. The first four elements of collateral estoppel are clearly applicable here. Liberty's malpractice action against the Richard firm is based on the firm's failure to correctly prosecute the petition to vacate the default in the Signora class action suit. That identical issue was directly addressed and adjudicated to finality by the trial and appellate courts in Pennsylvania and the determination of that issue was essential to the ultimate judgment in Signora.
The fifth element of collateral estoppel requires a showing that the Richard firm was in privity with Liberty in the Pennsylvania proceedings.
The concept of privity, as well as its parameters, are necessarily imprecise: Privity states no reason for including or excluding one from the estoppel of a judgment. It is merely a word used to say that the relationship between the one who is a party on the record and another is close enough to include that other within the res judicata. A relationship is usually considered close enough only when the party is a virtual representative of the non-party, or when the non-party actually controls the litigation. [Zirger v. General Accident Ins. Co., 144 N.J. 327, 338-39 (1996) (internal citations and quotations omitted).]
Thus, in general, "one person is in privity with another and is bound by and entitled to the benefits of a judgment as though he was a party when there is such an identification of interest between the two as to represent the same legal right."
Id. at 339 (quoting Moore v. Hafeeza, 212 N.J. Super. 399, 403-04 (Ch. Div. 1986)).
Here again the record clearly shows that the Richard firm and Liberty were in privity with respect to vacating the default judgment entered against Liberty in the Signora action. The Richard firm controlled the prosecution of the various motions to vacate the default entered in the Pennsylvania court; the firm shared the same interest with Liberty that these motions be positively received; and both the Richard firm and Liberty were aggrieved and injured by the denial of those motions. Collateral estoppel thus bars the Richard firm from relitigating this issue in the context of an affirmative defense to Liberty's legal malpractice action.
The trial court also erred in conducting its own de novo review of the decisions reached by the courts in Pennsylvania. Under traditional notions of comity, the trial court should have respected the rulings made by the trial and appellate courts in Pennsylvania and deferred to their interpretation and application of the procedural rules governing the prosecution of civil cases in that state.
Rooted in the full faith and credit doctrine, principles of comity have been invoked to prevent a New Jersey court from entertaining challenges to the fairness and adequacy of a judgment issued by a sister state. Simmermon v. Dryvit Systems, Inc., 196 N.J. 316, 331 (2008). In Simmermon, the Court considered whether the Full Faith and Credit Clause required a New Jersey court to "give preclusive effect to a nationwide class action consumer fraud settlement in Tennessee and dismiss an ongoing individual action" filed in this State against the same defendant and concerning the same issue. Id. at 319-20. In ruling in favor of the defendant, and dismissing the New Jersey suit, the Court emphasized that because the matter under consideration was given a full and fair hearing in the courts of a sister state, comity compelled a court in this state to refrain from engaging in "collateral second-guessing" of that sister state's judgment, as that state was already responsible for protecting the interests of absent class members in that action. Id. at 331.
Similar concerns permeate the matter before us. The Pennsylvania courts ruled to finality against Liberty, as represented by the Richard firm, in a class action intended to protect the interests of Pennsylvania residents in receiving the protections of that state's minimum wage laws. A New Jersey court, bound by the principles of comity, should not engage in "collateral second-guessing" as to the propriety of the Pennsylvania courts' interpretation of that state's civil procedure rules.
By way of recapitulation, based both on the doctrine of collateral estoppel and the principles of comity, the Richard firm is estopped here from challenging the propriety of the Pennsylvania courts' rulings that it did not correctly present and prosecute the petition to vacate the default entered against Liberty in the Signora class action suit. Thus, as a matter of law, in this legal malpractice action, Liberty has established that the Richard firm deviated from the standard of professional competence expected of attorneys when it failed in its efforts to vacate the default judgment.
Notwithstanding these conclusions, we affirm the trial court's order dismissing Liberty's malpractice suit against the Richard firm because, under the case within the case doctrine, Liberty was legally liable to the defendants in the class action suit. We agree with the trial court that Liberty did not establish a causal connection between the alleged legal malpractice and the damages allegedly sustained. Froom v. Perel, 377 N.J. Super. 298, 313, 317 (App. Div.), certif. denied, 185 N.J. 267 (2005). We affirm the trial court on this issue substantially for the reasons expressed by the court in its February 4, 2008 memorandum of opinion.
We also affirm the trial court's order dismissing Liberty's case against the Sereni defendants substantially for the reasons expressed by the trial court in its February 4, 2008 memorandum of opinion. Judge Battle in Pennsylvania conclusively found that Fleissig repudiated the terms of the agreement reached between Stern and Sereni. Thus, as the trial court noted here, res judicata precludes Liberty from relitigating these claims.